ELSS vs Mutual Funds: Comparison, Differences, Review

ELSS and Mutual funds are similar in nature. Generally, ELSS is referred to as tax saving mutual fund as well. But, these two serve a completely different purpose to investors. I thought of highlighting ELSS vs mutual funds difference, comparison and review.

These are diversified equity funds suitable for investors who are comfortable to risk.

A popular investing alternative option for investors who want the benefits of both capital appreciation and tax savings.

The investment made in ELSS is tax exempt up to Rs 150000 under section 80C.

Mutual Funds

Mutual funds are professionally managed funds which pool money from numerous small investors.

It invests in equity and debt instrument of publicly traded companies and of government securities.

The objectives of mutual funds are wealth maximisation over long term period.

There are various types of mutual funds like equity funds, debt funds, balanced funds etc to suit the various financial needs of investors.

ELSS are also a kind of mutual fund.

Comparison Between ELSS and Mutual Funds1. Approach to Investment:Investment in ELSS does not restrict to tax saving purpose only. It opens the door to the equity investment in a disciplined fashion. The returns are more as compared to other tax saving instruments like PPF, NSC. One should check the fund's return over the long term and the performance of fund manager in managing the portfolio.

Investment into mutual funds is decided by the financial goal, risk appetite, time period of investment of an investor. Mutual Fund's sole objective is wealth maximisation over long period time.

2. Lock-in period:Investment in ELSS have 3 years lock-in period where you cannot withdraw funds for at least 3 years. Moreover, if the investment is done through SIP, then each installment of SIP has to complete the mandatory 3 years lock-in period before it can be liquidated.

Mutual funds don't have any lock-in period on investment and are highly liquid investment.

3. Risk Factors:
ELSS doesn't guarantee any return on investment just like Mutual funds. The management and investment approach are same for both fund types.

ELSS funds are actively managed, where risk is managed efficiently by the fund manager. Historically, ELSS has outperformed the traditional tax saving instruments. In mutual funds, investors can choose category of fund according to their risk appetite but investor of ELSS does not have this option

4. Tax Benefits:
The main purpose of investing in ELSS is the attractive tax benefit. The investment made on ELSS is tax exempt under section 80C of The Income Tax Act. So, you can claim a tax deduction of upto Rs 1.5 lakhs for the year in which investment has been made.

Mutual Funds enjoy the benefits of taxation for long term investment. Taxation of different fund types is based on period of holding.

As discussed above, the only major difference in investing in ELSS than mutual funds is the tax benefit. But, it also comes with certain disadvantages like lock-in period, lack of flexibility in a portfolio of the fund and risk on capital.

Further, ELSS falls in the category of Equity funds. So, after the introduction of 10% tax on equity (where LTCG exceeds Rs.1 lakh during a financial year) this is a matter of concern for investors.

What do you think about it? Which investing option do you like? Do share your feedback.

Taxation treatment is an important aspect of investment in Debt Funds. This post discusses about Debt Funds Taxation in detail
Debt Funds Taxation
Everyone would like to earn more and more income and want to achieve their financial goals in life. With the increase in income, the income tax burden also increases. The higher the income, higher is the tax rate. People want to minimise the tax liability in legal ways so as to have more of their hard earn money in their hand. The government has also given certain ways through which everyone can save tax. Mutual funds also enjoy certain taxation benefits. One can invest in equity mutual fund or debt mutual fund depending upon his or her risk bearing capacity, age, time horizon, financial goal etc. In this post we will have a look at debt funds taxation.
Let us understand more about taxation of the debt mutual fund.
How are debt funds taxed
There are various kinds of debt fund namely, Short term, Fixed Monthly Plan, Ultra short-term, liquid and gilt fund. The taxation of all kind of debt funds is similar.
The returns from funds are characterised short term and long term. In case, of debt mutual fund, if a unit of debt mutual fund is held by an investor for more than 36 months from the date of unit purchase, then it is to be considered as long-term capital gain. On the other hand, if units are sold within 36 months from purchase, then it is considered as short term capital gain.
The holding period of 3 years based on which gain or loss classified as the long or short term was introduced in budget 2013-14. Before this, long term was considered if holding of funds for more than 1 year and less than 1 year classified as short-term capital gain. Also in case of long-term capital gain, the
In case, of short-term capital gain, the investor has to pay tax as per the applicable income tax slab. Such gain will be added to total income and accordingly tax limit is ascertained. For example, Mr. X is in the tax slab of 10% and if there is short term capital gain then he has to pay tax @ 10% on such gain.
While in long-term capital gain, the investor has to pay tax @ flat 20% of the gain with the benefit of cost indexation. Which means the absolute gain of investor will reduce by taking into effect the inflation rate. This will eventually reduce the income or gain which is liable for the tax. Previously before the introduction of budget 2013-14, the rate for long-term capital gain was 10%.
Just to sight more focus on and bring more clarity, I am going to explain this with a hypothetical example.
Example
Tax on Short-term capital fund
An investor invested Rs.50,000.00 in debt fund on April 10, 2013, & remain invested till March Feb. 2014. He is in the tax bracket of 10% for Financial Year 2013-14. Suppose Sunil received Rs. 5500.00 as the return from debt fund. This income from debt fund will be added to his salary and will be taxed at 10% rate. So Rs.550 was the amount he had to pay as tax.
Tax on Long-term capital fund
In the above example, had the amount of Rs.1,00,000.00 remained invested from April 10, 2011, to April 26, 2014. The return he earned from such investment was supposed Rs. 29000. Now this gain is considered as long-term capital gain and will be taxed at the rate of 20% with indexation benefit.
Taxation of dividend on debt funds
It is important to note that dividend received from debt fund is tax-free in the hands of a unit holder of the debt fund. On the other side, the company has to pay Dividend Distribution Tax (DDT) before distributing the dividend. It should be noted that such DDT portion comes from NAV of units and hence after declaring dividend the NAV of the fund reduces.
What is considered as redemption
It is very important to note that whenever investor is making transaction wherein units of debt fund goes out from the holding is considered as redemption. So one has to be careful in cases of a switch over from growth option of dividend option or from one plan to another plan or changing plan from systematic withdrawal or transfer. All such transactions are considered as redemption and necessary taxation will be applied.
Conclusion
It is very simple and clear that taxation of mutual funds comes into the picture as and when units of mutual funds are sold. In the case of a debt fund, when units are sold within 3 years from the date of purchase; its gain is considered as short term capital gain and while units are sold after 3 years from purchase date is called long-term capital gain. Investors in the higher tax bracket are advisable to hold the units till 3 years because if the units are sold within 3 years then the tax rate will be applicable which is increase the outlay of tax. On the other hand investors with 10% to 20% tax bracket will not have the significant tax impact. Moreover, the dividend from debt fund is tax-free.

The introduction of Systematic Investment Plan (SIP) in the mutual fund is regarded as one the major breakthrough in the financial sector. It has helped to attract a new class of investors in the sector who were not comfortable to invest a lump sum at a time.
SIP in mutual fund first was launched on December 4, 2010, through BSE Star MF platform.
So, What is SIP and why it so much popular among mutual fund investors?
What is SIP? Systematic Investment Plan
Systematic Investment Plan is an investment mechanism offered in open-ended mutual fund schemes. Here, small regular investments are made in a particular MF scheme over a long period of time.
It helps in beating the volatility in the market and accumulate large amount at maturity with the small investments made over the period. The investment mechanism is similar to Recurring Deposit scheme in which one saves with the bank and in SIP, one invests in the market and return percentage is far better than RD.
SIP: Features to know
Investment in SIP can be started with minimum of Rs 500 and then increases in a multiple of Rs. 500.
Flexible intervals with Monthly, Quarterly and Half yearly investments.
Focused method towards investing with ease.
The real benefit in SIP comes through the power of compounding. Small investments made earlier in low price magnifies at the time of redemption.
SIP helps to average out the fluctuations in the market with investments done at different price.
SIP delivers attractive return over a long term investment horizon.
How does SIP work?
SIP works on a simple formula, Start Early with Regular Investments to create wealth.
It is always difficult to time the market correctly to make huge fortunes due to n numbers of factors constantly affecting the market. But with SIP, it reduces the factor of volatility in the investment as it is spread over a long period of time.
The market constantly moves in an up and down direction. Since an SIP invests regularly in the market whatever the market condition is, some investments are locked when prices are low and some at higher prices. Therefore, it helps to average out the volatility and achieve a lower average cost per unit.
SIP Calculator:
SIP calculator is provided on different platforms. These are very comprehensive and easy to use. An investor needs to mainly provide three sets of information i.e
Expected saving in a year
Duration of the investment
Expected Return (Normally it is suggested to take between 12-15 percent p.a.).
The chosen SIP calculator will compute the data given and will show the expected return of the investment in a Graph or Table format with expected maturity value.
How to start an SIP?
To start SIP on a particular scheme, an investor has to submit following documents with specific details and mandate.
Investment form with details of the investor and MF scheme
A SIP registration form, in which details like time period of the SIP investment (5y/10y/20y), the amount of the SIP (Rs500/ Rs1000/ Rs5000), SIP trigger date and in which frequency the investment will be made (monthly, quarterly/half-yearly).
A filled up ECS/NACH form in which an investor gives the mandate to AMC to receive funds from the bank account for the SIP amount in the specified trigger date.
How the SIP investment is taxed?
From 1st April 2018 tax on equity mutual funds shall be applicable on LTCG above Rs.1 lakh p.a. @10% without indexation benefit. For equity funds, the period of holding more than 12 months is regarded as long term.
While Debt mutual funds with more than 3 years on investment horizon are taxed at 20 percent with indexation benefit.
Those SIPs which continues until the time one redeems the investment and new units gets added to the investor's portfolio.
For equity mutual fund all those units added in the past one year of the SIP tenure and gains on those added units are taxed under Short term capital gains @ 15 percent. For debt funds, the capital gains arising from the units added in the past 3 years of SIP tenure are taxed @ 10 percent.
SIP Investment: Some Misconceptions Cleared
SIP is designed for small investors only: Fact of the matter is, it is suited best for all types of investors from small investors to high net worth investors.
You should not start SIP when the market is high: It is not true, one can start investment through SIP during any market condition. SIPs are purposed to stay invested in for a long time in which all market phase will get factored in.
Once SIP is started, you cannot stop or change the time-period of investment: It is always suggested to track the performance of investment regularly. One can stop, change or redeem the investment mid-way of the SIP tenure.
One can get better returns from timing the market than committing to SIP: The whole process of SIP is for disciplined investing over a long period of time. Timing the market is a very difficult task and depends on many factors. And the probability of success is very low when you are timing the market to gain huge fortunes.
SIP in Mutual Funds: Conclusion
Investment in mutual funds through SIP is a game changing development for the industry and investors. Moreover, it has helped many small investors to become a part of the system who could not afford to invest a lump sum in mutual funds earlier. In SIP, patience and a right fund will work wonders for the investor in long term.
Now, that you know what is SIP in mutual funds. You are also clear on how SIP works and how to start SIP online. What do you think? Is investing through SIP in mutual funds good?

@Smart2Investor These features in FundsIndia sounds amazing. But, the only concern in this is the reliability on this brand. Till now people get more attracted for investment to the brand. The features in which proper counselling is given also seem good.

Consolidated Account Statement or CAS is a single account statement which consists of all the financial holdings and transactions in an investor’s portfolios. This covers all schemes of the mutual funds.
Mutual funds Consolidated Account Statements: Importance
This statement provides a consolidated view of an investor’s financial assets.
Mutual fund statement aids in better understanding of the portfolio across different asset classes.
It enables enhanced investor experience and benefits him/her to make better decisions, and simplifies the monitoring process.
It allows the user to manage their portfolio in a finer way.
It helps to analyse investor's portfolio and many other features are also offered.
In nutshell, it allows the user to manage their portfolio in a smarter way. CAS also helps to analyse their portfolio and many other numerous other benefits as well.
Why CAS (Consolidated account statement?
The CAS is issued after an amendment was done in the SEBI Regulations in 2014. It was decided that one record will be maintained for all the financial assets of each and every individual.
So, CAS was introduced to allow a consolidated view of an investor’s investments in securities held with the Statement of Account (SOA) form with Mutual Fund (MF) and demat form with the Depositories.
When will you receive the Consolidated Account Statement or CAS?
According to the SEBI guidelines, any investor who performs a transaction in any of their demat account or mutual fund folios will receive a CAS. The CAS is sent either on or before the 10th day of the next month.
It will contain the details of all the transactions and holdings along with transaction fees of the distributor, across every scheme of all mutual funds.
However, if no transaction has occurred in any of the demat account or the mutual funds in any month of the year then CAS is sent to the investor in 6 months. For example, the investor will receive CAS with holdings as on March and September end in the succeeding month, i.e., April and October.
Basis for consideration of portfolios for CAS:
According to the amendments to SEBI regulations, the common investors are identified by the asset management company on the basis of Permanent Account Number (PAN).
For multiple holding, the PAN of the first holder and the type of holding forms the basis for considering and consolidating to issue CAS. The portfolios that satisfy any one of the below listings will be considered while issuing CAS:
Identical holders
Financial transactions in a month
All unit holders who are KYC compliant
Which of my portfolios will be incorporated in the monthly CAS?
The monthly CAS will only include your active portfolios. So, it will have data on only those portfolios where you did an active transaction in last month. It means that it will incorporate only those portfolios in which some financial transaction has occurred during the given month. The portfolios must also furnish valid PAN numbers for all its unit holders.
Let us say, you have four portfolios but you transact in three of them in one month. The monthly CAS will include only the three active portfolios and the fourth one in which no transaction has occurred, will not be reflected in the monthly CAS.
Financial transactions reflected in CAS
The CAS includes all categories of financial transactions such as:
Redemption including maturity.
Purchases including NFOs, switches, dividend payouts or re-investments.
Bonus transactions or merger.
Systematic transactions like STP, SWP, SIP etc.
Is there anything you wish to add upon to this information? Feel free to share your feedback or any updated info on the same.

There are currently 16 different categories of debt funds available. The regulator has segregated the schemes based on the modified duration of the underlying portfolio, while certain categories like Credit Risk Funds and Corporate Bond Funds are defined as per the credit quality of the underlying portfolio. Mutual funds are expected to generate the best risk-reward based on the scheme’s investment mandate and in ultimate good faith of the investor. However, in the quest to generate a higher alpha, some fund managers tend to take on a higher risk. Naive retail investors often bear the brunt of these investment decisions if the promoter companies are unable to pay up.

Here we discuss in brief about Short term debt funds, its meaning, features and objective to invest. Investment in the capital markets always exposes your capital to the risk of volatility. So, it is not suitable for those investors who depend on their savings for livelihood.
Short Term Debt Funds: Features
Short Term Debt Mutual Funds provide an alternative to traditional Fixed Deposits and Monthly Income schemes.
Short term debt funds can offer higher returns and low volatility.
These are also known as income funds.
These fund invests in Govt. and companies debt instrument and money market instrument of shorter duration of maturity of up to 3 years.
These are highly liquid debt instruments and also help the investors to fight inflation.
How Debt Funds work?
The fund generates its return from interest it receives from bonds and capital appreciation.
The bonds are traded at regular market and bond prices are affected by Interest Rates Risk i.e bond price and interest rate moves in opposite direction, credit risk, and inflation.
For example: If the interest rate falls in the economy, new debt instruments starts getting issued at newer rates less than previous rates. Then investors start to buy the old bonds which have high rates and the price of bond increases.
What's your take on Short term debt funds in India? There are so many investing instruments, one tends to get confused. So, be careful in planning your investments.

@Girish Khanna @Punkeirang I think FD is a good option for Senior citizens since they get a good interest rate plus some extra tax saving benefit also. But, for others the interest rate you are saying 7-8% is not the actual rate. This is before tax rate. And, more interest is offered for long term FDs.
Also, the real rate of return is much lesser after taxes. So, you basically get lesser in hand amount.

In a way, there are a lot of similarities between Mutual Funds and Hedge Funds. In the both types of investments, a group of investors pool their money and invest in different type of securities. The main misconception about the funds is that people think that they are similar and the terms are interchangeable. In reality, they are not same and there is a very thin line between them. The main difference between these two funds is that in a Hedge fund the number of investors is very less while the Mutual fund has a large number of investors.
Mutual Funds
In simple words, a mutual fund can be considered an investment vehicle in which a group of people pools the money and a fund manager invests those funds in different securities. The manager often charges a fee for the administration of the fund, which depends on the size of the investment.
Hedge funds
A hedge fund is an investment portfolio which is managed under investment partnership. These types of funds are a private portfolio of investments which uses highly advanced strategies for the investment and risk management.
The key differences between Mutual and Hedge funds
A hedge fund is a privately owned portfolio investment in which only a few investors are allowed. However, a mutual fund is a professionally managed investment plan where a number of investors pool their money to buy securities.
The main aim of hedge funds is assured returns while mutual funds aim at relative returns.
The owner of mutual funds can be thousands in number while in hedge funds the number of investors is very limited.
The hedge funds are managed with highly advanced strategies and risk management techniques to ensure good returns which are not in the case of mutual funds.
The hedge funds have high profile investors while the mutual funds include retail investors who invest relatively small amounts.
Hedge funds have very limited regulations from the government side, however, in the case of mutual funds, the Securities Exchange Board of India (SEBI) issued guidelines from time to time.
In the hedge funds, the management fees depend on the returns on the investment while in the case of mutual funds the management fees depend on the assets that are being managed.
In mutual funds, the asset manager does not hold any substantial interest while in hedge funds the person or company that manages the funds also owns a large part of the investment.
When it comes to mutual funds, the reports about the investments and returns have to be published yearly. Also, the disclosure of the investments has to be made public every six months. While in hedge funds the information about the investments and returns is released to the investors only.
Conclusion
The investments in both funds depend basically on the recourses you own. If you have a lot of funds you can invest in hedge funds. In case you have limited resources, you can choose to invest in one or two mutual funds depending on what kind of returns you are looking for.

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